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Corresponding Author:
Georgios Chortareas, Department of Economics, King's College London, United Kingdom and Department of Economics, National and Kapodistrian University of Athens, Greece

Coauthors:
Konstantinos Ioannis Linardatos, Department of Economics, National and Kapodistrian University of Athens, Greece

An Operational Shadow-Rate Framework for Policy Analysis

July 1, 2026
JEL classification: E43; E52; E58
Keywords: Effective Lower Bound; Financial Stability; Monetary Policy Stance; Shadow Rates; Term Structure Models

Abstract

During the effective lower bound (ELB) era, policy rates became non-informative regarding the monetary stance, motivating the use of shadow rate models. Based on that, this paper aims to offer a comparative assessment of these models into a working taxonomy. We find that estimates converge at monetary policy turning points but diverge in their within-ELB levels, with three-factor specifications yielding systematically shallower troughs than more constrained alternatives. Moreover, the Euro Area displays a deeper and more prolonged negative policy stance than the United States. Overall, shadow rates are best employed as model-contingent summaries within a multi-model framework, with cross-model uncertainty bands reported alongside any point estimate.


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Institute for International Economics
of the Genoa Chamber of Commerce


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